Your credit score and credit history report are a vital part of the mortgage application process. If you have any credit issues, you may still get mortgage financing though your options might be limited as to who will approve you, and the rate and costs charged could be higher. This week’s article is all about quick and efficient ways to improve your credit, or if you already have good credit, it will help you to keep your high credit score.
Here are a few quick items to note about credit in general. The exact formula for calculating a credit score is not readily available, however, I do know some general guidelines that will directly affect the numerical value that is representative of your credit repayment habits. These factors are; payment history, amounts owing, length of credit history reporting, new credit, and types of credit used. There are a few different ‘types’ of debt or credit that also contribute to your overall credit score;
Instalment Loans: Debts with a fixed repayment schedule and declining balance that do not allow you to ‘re-use’ those funds as you pay the balance owing down. These include student loans, car loans and debt consolidations.
Revolving Credit: Debts with a revolving balance and minimum payments that fluctuate depending on the outstanding amount you owe. Credit facilities such as credit cards and lines of credit are included in the revolving category and can be re-used over and over again as you pay the balances owing down.
Now for 7 credit tips;
- Don’t close unused credit if you don’t have to
This applies to revolving credit such as lines of credit or credit cards. You want to continue to use these credit facilities on a regular basis for small amounts and pay them off immediately to avoid interest charges. This can keep your credit active and improve a low credit score the longer you have them open and reporting.
- Beware of closing accounts
If you are paying off a debt to zero, or a collection or judgment of any sort, get it in writing. It is very important to have written confirmation the balance is now paid in full for your own records. Further to that, if you are applying for credit and the action is not yet showing up on your credit report, you want to be able to provide a potential lender with supporting documentation confirming it has in fact been paid in full. I have seen many instances where small unknown balances owing have negatively affected or delayed a timely approval for financing. If you’re having trouble getting the paperwork you need, be persistent!
- Spread out your spending
Credit utilization, or how much you owe versus your limit available is a big contributing credit score factor. It is better to have 2 cards charged up to 50% of the limit than to have 1 card charged to its limit or worse, over limit.
- Never exceed your credit limit
Even $1 over limit can seriously reduce your credit score. Always ensure your balance owing is below your limit before your interest calculation day where it is added to the balance owing each month. Your interest calculation date can differ from your payment date; check your credit card paperwork to confirm the date and if you’re unsure, make a habit of not charging more than 75% of your credit limit.
- Speak to professionals with shared goals
When it comes to credit, there is a different credit plan for someone eliminating debt than there is for someone getting a mortgage. Make sure the professional whose advice you’re taking is aware of your financing goals and do your research before making any decisions about your credit.
- Pay your bills on time
Late payments lower your credit score. As we can see the repayment history on a credit report, it is possible for us to see how many times a borrower has been 30, 60, or 90 days late with their minimum payments. As late payments can reflect poor repayment habits, they could hinder your ability to get approved for financing at best rates. To ensure you’re credit history is seen favourably; try to have at least 24 months of prompt credit repayment.
- Know your score
Protect yourself from identity theft by checking your credit at least once a year. The higher your score, the lower risk you are to potential lenders if you are applying for credit. Being aware of what is showing up on your credit report is the best way to stay on top of it. Be wary when it comes to free credit report offers, the most secure way to obtain your credit report information is to see a professional specializing in credit or visit Equifax.ca and use a credit card to obtain your credit details.
While these tips should help improve a credit score in general, they do not replace a personalized consultation with an experienced credit professional. Don’t be afraid to call around and find someone you trust to work on a plan together for getting and/or maintaining a great credit score, I can’t emphasize enough how much of an asset a good credit score is. Your credit score impacts many aspects of your life, most importantly, your ability to borrow money. Lenders are increasing minimum credit requirements to qualify for a mortgage and even landlords are ordering credit reports before renting to a tenant. A great credit score can help ensure you obtain the favourable conditions you’re looking for.
Do you have credit questions? Contact Jackie at 780.433.8412 or email@example.com. Stay in the loop by following on Twitter @Mortgagegirlca.