Your credit score reflects your past use of credit. If you have misused credit in the past this will be reflected in a low credit score. The problem with having a poor credit score comes when applying for a mortgage loan. Many mortgage lenders will simply deny your application. If you have a poor credit rating you may have to use a specialty mortgage lender to qualify for a mortgage; these lenders will charge you a premium fee for their services. There are steps you can take to improve the mortgage you will qualify. Here are tips to help you improve your credit score.
Reduce Your Use of Credit
Mortgage lenders view excessive credit as the potential for debt. If you have credit accounts that you rarely use, consider paying them off and closing the accounts. If you do not want to close the accounts at least pay down the balances.
Pay Down Your Debts
A large portion of your credit score is based on your debt to income ratio. This ratio reflects the total debt you carry from all of your creditors against your income. If you only make the minimum payments on your credit cards you will not pay down your balances and improve your credit score. Pay down the balances as much as you can before applying for a mortgage and avoid the temptation to make minimum payments.
Make All of Your Payments on Time
Your payment history also has a significant impact on your credit score. Making all of your monthly payments on time will have a significant impact on your credit score. Avoid making late payments at all costs for at least six months before applying for a mortgage loan. You can learn more about your mortgage options by registering for our free mortgage guidebook: āFive Things You Need to Know Before Refinancing Your Mortgage.ā
My name is Rob Regehr and Iām a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
