Lenders will consider your credit score when considering mortgage applications. Good credit scores can make all the difference in whether you get approved for the mortgage or end up living in a high-priced apartment. Credit scores can be elusive. Even if your credit score is known, it's possible to be unsure about its outcome. There are steps you can take that will improve your score.
A free credit report
It is important to get a free credit score before you apply for a home loan. This report will show you your credit score and any past mistakes. A free report should be requested at least six months in advance of making large purchases. Rebuilding your credit can take a while.
The federal trade commission can provide you with a report, or you can request it by mail. The processing time for the report is approximately 15 working days. To request it, please use the Annual Credit Report Demand Form. You can also get a free credit report from one of the major credit bureaus.
Calculating your mortgage credit score
Mortgage credit scores place a great deal of importance on two factors: payment history and credit utilization. While late payments can damage your credit, making all your payments on time will improve your score. Credit utilization measures your total debt to credit. For example, if you have a $1,000 credit line but only $500 of it is available, your credit utilization rate is 50%. Ideal credit utilization rates are 30% to 30%.
While lenders use slightly different methods to determine credit scores, the underlying factors remain the same. Your mortgage lender will give you a credit score that is significantly lower than your personal credit score. A key step to improving credit scores is checking your credit report regularly.
How to get a credit monitoring system
If you are in the market to buy a home, a credit monitoring company can help you track your credit score so you have a better chance of being approved. Although these services can't stop identity theft or criminal activity they can alert to potential fraudulent activity. This is a great benefit when you are about to make a major purchase.
Credit monitoring is a service that monitors credit reports, alerts you to potential changes and scans them for fraud. Fraud and identity thieves are on the rise. The Federal Trade Commission forecasts that 44.7% of all cases will increase by 2021. A credit monitoring service can help you identify unauthorized changes in your credit reports, such as new credit cards and a loan application. There are both free or paid credit monitoring options, so you can choose the one that suits your needs best.
A lower score on your mortgage credit
Before applying for a loan you need to be familiar with your mortgage credit score. Low credit scores are a sign of financial trouble. Adding another mortgage to your debt pile is not a wise idea. To compensate for the higher risk, lenders will charge higher rates of interest on mortgages with low credit scores. Therefore, it is better not to apply for a mortgage until your credit score has improved.
By reducing your debt, you can improve credit scores. You can reduce your debt utilization and increase your equity by paying off your credit cards. This will raise your credit score in preparation for applying to a mortgage.