The main factor that lenders consider when it comes to determining the amount and the rate at which you borrow funds is your credit score. Your credit score is determined by your credit worthiness, or how likely it is that you will be able to repay the amount of money loaned to you. Many people are not aware that your credit score from vary from agency to agency for multiple reasons. There are three major credit bureaus: Equifax, Experian and TransUnion and all report a little differently from one another.
Credit scores can change over time so it’s very important you know what impacts your credit score when you are seeking out a mortgage. Your credit score is typically based on the following:
- Timeliness of payments/payment history
- Amount of total debt
- Overall credit history
- Debt to income ratio (used credit vs available credit)
Credit scores vary from 300 to 850 and the higher your credit score, the better chance you have at getting approved for a loan. Depending on the reason you are using your credit score, the lender may use different requirements to measure your creditworthiness based on the industry and type of loan.
Raising Your Credit Score
The overall process of buying a home can be somewhat overwhelming but that feeling can grow when discussing finances. Most people know that their credit score is important when getting qualified, but things often show up that aren’t expected and they have to go back to work on it before moving forward with the process.
The easiest thing you can do to keep your credit score as high as possible is to make your monthly payments on time and keep them up to date. Setting up automatic payments with an online bank account is a stress free way to make sure your bills are paid in a timely manner.
You’ll also want to monitor your credit card balances and to keep your spending on them as low as possible. You want to have a majority of your available credit be free versus used.
One thing that can catch people off guard is credit report errors that can come from identity theft or a past due bill that got lost in the shuffle. Because credit reports can vary, it is a good idea to review all three and dispute any errors with the agency that is reporting.
When people are working on improving their credit score, they often make the mistake of paying off balances and closing the account. This is a mistake because when an account is closed, it is not reporting, and therefore not contributing to your credit score. Keeping your account open and at a low or zero balance will report monthly and can increase your score because it’s reporting as an on time payment.
While you don’t want to close accounts that are positively reporting, this does not mean you should open multiple accounts so they can report as well. It’s important to open accounts for necessary purposes only, not just because you want to increase your credit score. If it looks like you are opening accounts left and right, this can be considered a negative and can actually hurt your score versus help it.
Reach Out Today!
We know that discussing your finances and your credit score in general, can be a very sensitive situation but we want to help you through the process. We are here to answer your questions and discuss your potential approval with an expert at JZ Mortgage Services, Inc today!