Anytime you decide you take out a loan, your credit is going to be considered when determining the rate at which you borrow funds. The better your credit, the lower your interest rate, and therefore the less you pay overall. Your credit score is determined by your credit worthiness, or how likely it is that you will be able to repay the 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 range from 300 to 850 and the higher your credit score, the better chance you have at getting approved for a loan. Depending on the type of loan you are trying to acquire, the lender may use different requirements to measure your creditworthiness based on the industry and type of loan.
Raising Your Credit Score
Raising your credit score is a slow and steady process similar to the nurturing of a plant. You have to give it enough water, sun and care to make it mature and keep growing, and that is the same when it comes to raising your score. You want to take care of all the aspects that affect your score and keep it growing steadily to the best it can be.
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.
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.
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!
We know that the process of buying a home and securing funding can come with a lot of questions and concerns, but we want to do whatever possible to make sure you have all your needs met. Feel free to reach out to Family First Mortgage in Lafayette, LA today!