The key 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 can 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.
What Do I Do?
- Timeliness is Next To…
One of the first things you can do to improve your credit score is to make sure your payments are made on time. 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.
- A Watchful Eye
Another way to improve your credit score is 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.
- Dispute, dispute
It is also a good idea to review your credit report to make sure there aren’t any errors or old debts listed that should already be cleared. You can always dispute these charges, and that can raise your score very quickly without spending any money.
- Keep The Door Open
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.
- But Don’t Open Too Many
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.
Contact Us Today!
Making the decision to work on your credit score is a great thing and we commend you for taking the first step in the right direction. Whether you are trying to improve your score to purchase a home or simply just think it could use some work, we can help you out. Don’t be afraid to reach out to us at Family First Mortgage in Lafayette, LA today!