As a prospective home owner, one major factor is going to come into play – that being your credit score. While of course there are varying degrees of what is considered good or bad credit, however when you are hoping to secure a mortgage, it is definitely ideal to look for effective ways to improve your credit.
In order to make your home ownership goals a reality, here are 3 strategies you can implement to fix your credit score and to open the door to some more favourable home loan options.
#1. Lower your Credit Card Balances
The reason this tip is positioned at number one has to do with the fact that lenders are very interested in a potential borrower’s credit card usage. High level credit card balances not only will hurt your credit score, but this can also signal that a borrower is having difficulty managing their overall credit responsibilities.
As such, it will be important to lower these balances as much as possible. The suggested amount that you should look to keep your credit card levels at is below 15 to 30 percent of the total credit limit you possess. To further help you attack your credit card balances, in the event you have multiple credit cards with high balances, you can consider consolidating these credit cards into one loan.
Ultimately, a consolidation loan can allow you to manage paying off your credit card balances with a higher level of proficiency. Then what follows is not only a lower amount of credit card debt, but you will also set yourself up for more successful mortgage obtainment.
#2. Avoid Applying for Additional Credit Sources
Another method of improving your mortgage opportunities is to focus on this loan application and this loan application only. This means you should avoid applying for other credit sources during this time. If for example, you are also applying for a car loan or a new credit card, these actions will also be reflected in your credit report. More precisely, these credit application inquiries will be considered hard inquiries and hard inquiries unfortunately do lower your credit score.
Therefore, if you already have poor credit and are trying to improve it, it is best to avoid applying for additional credit and loans, as you want to work on beefing up your score and not the other way around. All in all, remaining committed to applying for your mortgage should be your top priority leading up to and during the home loan application process.
#3. Examine your Credit Report and Request Negative Credit Changes
Last but not least, when applying for any type of credit, it is always a good idea to fully examine your credit report. While most times, we may just assume that our credit report is 100% accurate, there are certain times when credit items will be incorrectly included in your report. When it comes down to it, these items will negatively affect your score and could make it more difficult to successfully obtain a mortgage or loan of any kind.
With this being the unfortunate reality, as a borrower you should review your report on a regular basis, particularly before you apply for additional sources of credit. Upon reviewing your report, if you have found incorrect items you will need to address these issues and apply to have them removed.
Furthermore, in the instance you have negative items such as late payments, and collections – although these items have been correctly reported, you can also look at requesting that these negative items be removed. To go about this you can compose a ‘goodwill adjustment letter’ to your creditors, asking that they consider removing these credit blips.
Here you will also want to provide an explanation for why you want/need them to be deleted. In this letter you will disclose your current credit situation, including why these negative credit actions occurred as well as how you are in the process of applying for a mortgage and it could benefit you to have an improved credit score. While this process is likely to take some time, in the end it can help you re-build your credit score and increase the likelihood of your mortgage approval.
As you can see, there are various steps you can take to counteract a negative credit score. Since a home loan is one of the most demanding loans to be approved for, it then makes sense that taking a proactive approach will be a necessary action.
Not only will having a better credit score allow you to advance through the mortgage process with a higher level of success, it can also enable you to secure lower interest rates, and more favourable loan terms overall. In the end with lower interest to pay and a more complimentary home loan, you may also find that the repayment mortgage process can become more manageable for you over the course of your home loan term.
