Being a homeowner is highly beneficial because you have a physical asset with an appreciating value. For this reason, all prospective homeowners go to great lengths when looking for the perfect home, especially if they plan to settle there for life. However, only a few can pay for a house out of their own pockets, so a mortgage is secured first.
A mortgage is a loan that allows a borrower to purchase a house without paying the total purchase price upfront. The loan is secured by the home and is typically repaid over some time, usually 15 or 30 years, where the borrower pays both principal and interest payments. However, the determining factor if a borrower can secure a loan is the credit score, which is any number from 300 to 900 and evaluates the borrower’s creditworthiness. A credit score of 650 and above enables a borrower to get quick approval with low interest rates. On the other hand, anyone with a credit score below 650 can still get a loan, but they may be subject to higher interest rates and stricter terms.
Luckily, there are many ways to improve your credit score, such as:
#1 – Check Your Credit Report
The first step to improving your credit score is to check your credit report. Your credit report contains all the information used to calculate your credit score, so you must review it regularly. You can request a free copy of your credit report from the three major credit bureaus (Equifax, Experian, and TransUnion) once a year.
When you receive your credit report, review it carefully for any errors or discrepancies. If you find any, contact the credit bureau to dispute them and get them corrected. This can help improve your credit score quickly. You should also look for any accounts that may be inaccurate, such as unpaid debt or accounts you don’t recognize. If you find any, contact the creditor to resolve the issue.
#2 – Pay Your Bills on Time
Paying your bills on time is one of the most critical steps to improving your credit score. Late payments will hurt your credit score and can stay on your credit report for up to seven years. To avoid late payments, set up automatic payments for your bills and use a reminder system to keep track of due dates.
If you miss a payment, contact the creditor as soon as possible to explain the situation. Many creditors are willing to work with you and will be willing to remove the late payment from your credit report if you can prove that the late payment was an oversight.
#3 – Never Close Old Credit Cards
Regarding your credit score, you must never close old credit cards. Keeping old credit cards open can help to improve your credit score because it increases the average age of your credit history. This is vital because one factor that goes into calculating your credit score is the length of your credit history.
The only exception to this rule is if you pay an annual fee for a credit card you do not use. In this case, closing the card to save money is better. Otherwise, it’s best to keep your old credit cards open.
#4 – Avoid Applying for New Credit Cards
Just as you should never close old credit cards, you must also refrain from applying for new ones during the mortgage application process. Applying for a new credit card can hurt your credit score. When you apply for a new credit card, the issuer will run a hard inquiry on your credit report. This inquiry can cause a temporary dip in your credit score, and if you have many credit inquiries on your report at once, it will spark red flags.
#5 – Lower Your Credit Utilization
Credit utilization refers to the amount of credit you use compared to your total available credit limit. For example, if you have a credit card with a $10,000 limit and have used $7,000 of it, your credit utilization is 70%.
When applying for a mortgage, you must keep your credit utilization as low as possible. A higher credit utilization ratio can indicate to lenders that you’re relying too heavily on credit, making them hesitant to approve your loan. Keeping it below 30% is generally recommended to maintain a good credit score.
#6 – Consider Using a Secured Credit Card
A secured credit card is a great way to build or rebuild your credit score. It is a type of credit card that requires a security deposit in exchange for a line of credit. The security deposit is collateral for the credit card issuer, assuring them that you will pay back any debt you incur.
The advantages of a secured credit card include lower interest rates and fees. Because the bank or lender has your security deposit, they will likely approve you for the card. Additionally, since your security deposit determines the credit limit, you can manage your spending more efficiently.
Your credit score can make or break your mortgage’s approval, so keep it in the acceptable range. It will be difficult, but the effort will be worth it because your mortgage will be approved with little to no issues. This way, you can be one step closer to your dream home.
Ottawa Mortgages Services provides top-quality mortgage services in Ottawa. We understand the complexities of the homebuying process, so we work to develop a solution that suits any borrower’s unique circumstances. Call us today at +1 (613) 697-8510 to apply!