If you’re planning to purchase a home with a mortgage, your credit score will play a big role. But what is it, exactly?
A credit score is a figure assigned to you based on your financial information. It measures the likelihood that you will pay your debts.
A low score indicates you are unreliable when paying bills, while a high score shows that you are trustworthy with credit. Lenders will use this number to decide how much they will lend you, the interest rate they will assign you or whether they will lend you anything.
Score not where it needs to be? There is good news! You can take steps to boost your credit score and add some ease to your finances.
Boosting Your Score
Make payments on schedule. This one may seem like a no-brainer. If you miss payments your credit score will drop, so no other tactics will raise your score if you are not paying your bills. The most significant factor in the FICO credit scoring system is the timeliness of your payments, and missed payments can stay on your record for over five years. If you are currently missing payments, start with this first step before moving on to other tactics.
- Avoid over-applying. When you apply for a new line of credit, the lender typically makes a hard inquiry about your credit report. This means they are looking over your past accounts and payments to see if they can trust you for a loan. These lower your credit score temporarily. While the inquiries do not stay for very long, a large quantity at one time can seem suspicious to lenders. If you are in the process of building up your score, gradually apply for credit to avoid flags on your score.
- Maintain a good credit utilization ratio. You are assigned a limit when you are approved for a credit card. The best practice for staying on top of this is to pay your balance in full every month. This is not always possible, so this impacts your credit utilization rate. This is the percent of your credit line that you are using as credit instead of paying back. If you cannot pay it in full every month, it is recommended that you keep your ratio at 30%, which means you are utilizing only 30% of your limit. The lower the rate, the more positive impact it has on your score.
Set Yourself Up for Success
Following these tips and being overall responsible with your money can lead you to a boost in your credit score. This is easier said than done, depending on your financial situation, so find methods that make the most sense for you. Once you do, you will be exposed to a new world of credit cards, home and auto loans.
Are you wondering what mortgage rates you can get with your current credit score? Contact us today to learn more about your options!
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